Apr 20, 2005
America's riotous real estate
By Mike Davis
Last February the sirens howled in Hollywood as the Los Angeles Police Department (LAPD) rushed reinforcements to the 5600-block of La Mirada Avenue. While a police captain barked orders through a bullhorn, an angry crowd of 3,000 shouted back expletives. A passer-by might have mistaken the confrontation for a major movie shoot, or perhaps the beginning of the next great LA riot.
In fact, as LAPD Captain Michael Downing later told the press: "You had some very desperate people who had a mob mentality. It was as if people were trying to get the last piece of bread." The bread-riot allusion was apt, although the crowd was in fact clamoring for the last crumbs of affordable housing in a city where rents and mortgages have been soaring through the stratosphere. At stake were 56 unfinished apartments being built by a non-profit agency. The developers had expected a turnout of, at most, several hundred. When thousands of desperate applicants showed up instead, the scene quickly turned ugly and the police intervened.
A few weekends after this tense confrontation in Hollywood, another anxious mob - this time composed of more affluent home-seekers - queued up for hours for an opportunity to make outrageous bids on a single, run-down house with a cracked foundation in a nearby suburb renowned for its good schools. "The teeming crowd," wrote Los Angeles Times columnist Steve Lopez, "was no surprise given the latest evidence that California's public schools are dropout factories."
..snip..
The great American housing bubble, like its obese counterparts in the United Kingdom, Ireland, the Netherlands, Spain and Australia, is a classical zero-sum game. Without generating an atom of new wealth, land inflation ruthlessly redistributes wealth from asset-seekers to asset-holders, reinforcing divisions within as well as between social classes. A young schoolteacher in San Diego who rents an apartment, for example, now faces an annual housing cost ($24,000 for a two-bedroom in a central area) equivalent to two-thirds of her income. Conversely, an older school-bus driver who owns a modest home in the same neighborhood may have "earned" almost as much from housing inflation as from his unionized job.
The current US housing bubble is the bastard offspring of the stock-market bubble of the mid-1990s. Housing prices, especially on the west coast and in the east's Bos-Wash (Boston-Washington, DC) corridor, began to rocket in the second half of 1995 as dot-com profits were plowed into real estate. The boom has been sustained by sensationally low mortgage rates, thanks principally to the willingness of China to buy vast amounts of US Treasury bonds despite their low or negative yields. Beijing has been willing to subsidize US mortgage borrowers as the price for keeping the door open to Chinese exports.
Similarly, the hottest home markets - southern California, Las Vegas, New York, Miami, and Washington, DC - have attracted voracious ant columns of pure speculators, buying and selling homes in the gamble that prices will continue to rise. The most successful speculator, of course, has been George W Bush. Rising home values have propped up a stagnant economy and blunted criticisms of otherwise disastrous economic policies. The Democrats for their part have failed to address seriously the crisis of millions of families now locked out of home ownership. In a bubble city such as San Diego, for instance, less than 15% of the population earns enough to finance the cost of a median-value new home. ...cont'd
http://www.atimes.com/atimes/Global_Economy/GD20Dj01.html 
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